November 27, 2008

The recession the world has now entered is deepening. It is no mere passing phase.

It may have been started by US housing loans going bad, but the problem for the whole world is much greater than a trillion dollars or so of dodgy US housing loans.

So far, we in Australia have taken comfort from the fact that the US situation is unique in many respects. We are fortunate in that we don’t have the equivalent of the Community Reinvestment Act, a toxic piece of legislation that mandates loans to high-risk borrowers. We don’t have the Association of Community Organizations for Reform Now (ACORN) to pressurise financial institutions to grant such loans. We don’t have government-sponsored organizations (GSEs) such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), both of which were protected politically from proper supervision, to sanitise dodgy loans.

We are also fortunate in that we don’t have non-recourse loans, loans under which the borrower is in effect provided with a put option to sell the mortgaged property to the lender for the balance owing on the loan. We are thus spared a major moral hazard in a declining market.

For years, Americans have saved too little and borrowed too much. Hooked on consumption, they have relied on foreigners to make up their savings deficiency. Now it’s caught up with them, and with those who lent to them.

In both Europe and America, banks are being bailed out left and right, the latest being the giant Citigroup. When you consider that banks are the most financially geared organizations on earth, this is hardly surprising. Even a conservative bank, with a gearing of twenty to one, only requires five percent of its loans to go bad to lose its entire capital, and some banks were geared as high as sixty to one.

Here in Australia, we are fortunate that the previous Federal Government paid off debt and built a future fund, but we shouldn’t feel too superior. The Americans were not alone in their failure to save. For years, our net savings have been low, sometimes even negative. We too relied on foreigners, not our own savings, to provide much of the finance for our houses, our industry and our commerce.

Clearly this was not sustainable. The economy was out of balance. But it worked for a time. Just as in the US, housing prices rose and the stock market boomed. We could shop until we dropped yet still be wealthier at the end of each year than at the beginning.

Now it has caught up with us and we’re all a lot less wealthy.

Older people are less wealthy because the value of their investment in superannuation has declined by up to 40%. Younger people are less wealthy because while their mortgages may be unchanged, the value of homes so financed has declined. Business people are concerned that they may lose everything if their business income proves insufficient to service their debts.

Of course, any changes in behaviour will depend on a person’s position to start with. The very poor already don’t save much as they have little to spare, so there won’t be much change in their behaviour. Provided they are not excessively geared, the behaviour of the very rich also won’t change much. They may economise by merely buying a new Bentley Continental Flying Spur and deferring the Learjet, but this will make little overall difference – there aren’t enough of them for that.

It is those in the middle – neither poor nor rich, but many also shareholders in public companies – who will be most concerned about the loss of wealth, even though they may not yet have experienced any actual loss of income.

Just as banks in Europe and the US must now recapitalise their balance sheets, people in the middle will also feel the need to improve their own personal balance sheets. They have the flexibility to adjust their expenditure patterns and this they will now do. They will spend less on holidays and home entertainment systems and keep the old car. Overall, their consumption will decline and their savings will increase until they are once again comfortable with their financial situation. Only then will a new equilibrium be reached.

This will take time, and government actions can either help or hinder this process.

Unfortunately, the government’s approach so far is to throw money around in the hope that people will be persuaded to continue to consume. The Federal Government’s recent gift to local government is an example of this.

But this ignores the fundamental problem – the drop in personal wealth. If governments want to help, the best thing they can do is give substantial tax cuts to help speed the rectification of personal balance sheets.

Eventually recovery will occur, but given the nature and size of the imbalances throughout the world, it will probably take at least five years. It will take less time if citizens are permitted to control their own expenditure and more time if governments in effect assert that they know how to spend your money better than you do.

September 28, 2008

Who can forget Sarah Palin's speech to the Republican Convention in which she accepted the nomination as John McCain's running mate?

Joe McCain, John McCain's brother, gave an insider's account of the speech in an article in The Australian of September 16 entitled The real barracuda.

In this article, Joe McCain revealed that the joke Palin told about hockey moms who, unlike pit bulls, wear lipstick, wasn't in the script. Indeed, she went so off-base during her speech that eventually the teleprompter operator decided to turn the thing off.

For the speech of her life, that demonstrated enormous self-confidence.

Lounge Lizard watched her as she spoke. He noted that she was a very fit and healthy looking person and that she was totally at ease with herself, her family and with being an American. She betrayed not the slightest hint of nerves.

She's tough.

She not only preaches conservative values but the choices she and her family have taken in life's journey demonstrate to ordinary Americans that she lives by those values.

September 14, 2008

In a recent post, On Palin's Sambo Comment, Manny draws our attention yet again to the main-stream media's (MSM's) willingness to publish unverified rumour and innuendo if it happens to suit their generally left-wing political agenda. The latest target is, of course, Sarah Palin, a backwoods yokel who confesses, horror upon horror, to being a Christian and who just happens to be in charge of an administration with some 15,000 employees, net assets of over $US 50 billion and revenues of over $US 14 billion per annum.

By now we've become inured to the media's persistent failure to undertake elementary fact-checks and its constant repetition of falsehoods, especially when reporting on Republicans in the US generally and George W. Bush in particular.

George W. Bush’s plastic turkey has ruled the global mediascape, from the Guardian to Pravda and the ABC, from the Sydney Morning Herald to the New York Times. This mighty bird, feasting on rich crops of gullibility and ignorance, may outlive the Bush administration. For as long as there are those who believe, the plastic turkey will remain forever real!

September 06, 2008

Many people of goodwill assert that, in Churchill's words, "to jaw-jaw is always better than to war-war."

In one sense that's perfectly true. People are killed in wars. But I'm sure that Churchill didn't have in mind that force should never be on the table, that our military should never be used.

Mere talk accomplishes little. Diplomacy of itself doesn't solve anything. All the other factors have to be in place.

Indeed, done badly, 'jaw-jaw' can increase the likelihood of 'war-war'.

Kennedy's 'jaw-jaw' with Khrushchev in 1961 was one such case. Khrushchev was so pleased with these discussions that he felt encouraged to go ahead and build the Berlin Wall and later try to install missiles in Cuba.

A good discussion of these issues may be found in an article by Joshua Muravchik entitled Obama’s “Talking” Cure in the September issue of Commentary Magazine. Richard Fernandez discusses this article and the issues generally here.

Right now, the Europeans are attempting to resolve the nuclear problems with Iran with diplomacy and Danegeld with, I suggest, an entirely predictable result, unless the Iranian regime collapses for other reasons in the mean time.

September 05, 2008

* Lounge Lizard responds to Moose, revealing the inspiration of his nom de plume.

Moose,

As usual, you make some good points.

I agree with you that there seems to be a decline in rationality, which can perhaps be put down to the rise in importance of the semi-educated, such as the so called 'doctors' wives'. Perhaps 40% of young people now go to university and therefore think they must be clever, but the truth is that only about 10% of the population are really capable of university-level thought, or what was once considered university-level thought - and that eliminates many current academics!

August 31, 2008

I think that Western leaders have to take into account the fact that their own people are also not always rational, and this impacts on what is considered to be in the national interest.

In short, and especially when you have a democracy, you cannot divorce the perceived national interest from a people's culture and as the author of part 2 has remarked, culture will out.

Here are just a few examples where it could be argued that sheer cold brutal expediency didn't, in the final result, determine policy:

"Poor Little Belgium is being raped by the Huns" - one of the reasons the British Empire entered the First World War so enthusiastically.

Retaining the Falkland Islands. The costs of recovering and retaining these islands far exceed any economic benefits. The few people who live on them are of no importance in the great scheme of things.

Support for Israel. If this was obviously in the national interest, both Israel and domestic Jewish lobbies wouldn't have to worry constantly about Western support.

Support for East Timor. The East Timorese display little capability and this failed micro state will be a constant drain on Australian resources for the foreseeable future. Objectively, it would have been far preferable for it to have remained a province of Indonesia. Indonesia would have borne all the costs and Australia would have been able to negotiate a better deal over the Timor Gap. However, a religious faith shared with many in Australia together with memories of support for our soldiers during WW2 helped generate a less expedient approach.

Given our culture, nothing will stop what might be called Western Interfering Missionary Programs (or WIMPS for short). They are a product of a free society and an economic prosperity that gives people time and resources to display their moral superiority, carefully sugared with a coating of pseudo-humanitarian blather. Some WIMPS we may not dislike, others we may deplore, but whatever kind, the world will have to put up with them. I particularly dislike certain NGOs such as Greenpeace and I deplore ego-driven bureaucratic arrogant do-gooder world government monstrosities such as the International Criminal Court. But these things are here to stay. They are like the Left, of which Richard Fernandez once remarked:

The Left is the Mr. Hyde of Western civilization, and as such probably ineradicable for as long as the civilization itself exists. As a practical matter, it has to be treated as a golf handicap. There’s no use railing against it. All that anyone can do is make allowances for their inevitable input.

Moose may deplore the Orange Revolution, but you have as much chance of stopping the promotion of this kind of thing as you have of stopping the spread of the common cold. The key is that it's more a matter of culture rather than of calculation. Sometimes there will be successes, perhaps temporary, as with the Ukraine; other times, hopeless and perpetual failure, as with Tibet. Bad experiences may slow and defeats reverse the changes sought, but like war itself, which they will help promote, WIMPS will continue to the end of time, or at least to the end of Western Civilisation as we currently know it.

August 01, 2008

In recent days, the planet has watched in wonder as The Child Obamessiah ventured forth to bring light unto the world. An awed Gerard Baker has reported on His Triumphal Progress both in The Times and at Fox News.

June 02, 2008

He said that in its place, Britain had become gripped by the doctrine of "endless self-indulgence" which had led to the destruction of family life, rising levels of drug abuse and drunkenness and mindless violence on the streets.

The bishop warns that the modern politicians' catchphrases of respect and tolerance will not be strong enough to prevent this collapse of traditional virtues, and said radical Islam is now moving in to fill the void created by the decline of Christianity.

The decline of the Anglican Communion almost everywhere except Africa has been extraordinary.

February 18, 2008

Dr Rowan Williams, Archbishop of Canterbury, has stunned the world by asserting that elements of sharia law should be incorporated into British law.

...in the interview, rather than proposing a parallel system of law, he observed that "as a matter of fact certain provisions of sharia are already recognised in our society and under our law" . When the question was put to him that: "the application of sharia in certain circumstances - if we want to achieve this cohesion and take seriously peoples' religion - seems unavoidable?", he indicated his assent.

The general reaction has been one of horror, as if he were hell bent (if you will pardon the expression) on the destruction of the Anglican church.